David Kostin, chief U.S. equity strategist at Goldman Sachs, says the comparison between the recent stock market sell-off and that in March 2000, when the tech bubble burst, "dominated client discussions" last week.

"The current sell-off in high-growth and high-valuation stocks, with a concentration in technology subsectors, has some similarities to the popping of the tech bubble in 2000," he writes in a note.

"Veteran investors will recall the S&P 500 and the tech-heavy Nasdaq peaked in March 2000. The indices eventually fell by 50% and 75%, respectively. It took the S&P 500 seven years to recover and establish a new high, but the Nasdaq still remains 25% below its all-time peak reached 14 years ago."

However, according to Kostin, there are six ways in which the two episodes differ:

Recent returns are less dramatic. Although the trailing 12-month returns are similar (22% today versus 18% in 2000), the trailing 3-year and 5-year returns are much lower (51% vs. 107% and 161% vs. 227%, respectively).

Valuation is not nearly as stretched. S&P 500 currently trades at a forward P/E of 16x compared with 25x at the peak in 2000. The price/book ratio is 2.7x versus 6.Xx. The EV/sales is currently 1.8x compared with 2.7x in 2000.

More balanced market. The reason it is called the “Tech Bubble” is that 14% of the earnings of the S&P 500 came from Tech in 2000 but it accounted for 33% of the equity cap of the index. Today Tech contributes 19% of both earnings and market cap. Top five stocks in 2000 were 18% vs. 11% today.

Kostin says based on historical patterns, momentum stocks are unlikely to rebound, but the broader market should still be set for modest returns going forward.

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